Recent Property Insurance Assignment of Benefits Legislation
After 6 years, the Florida Legislature has finally passed what appears to be an effective crackdown on Assignment of Benefit (AOB) abuse that has plagued first-party property insurance for years.
The Act creates Florida Statute 627.7152, which preliminarily defines “Assignment Agreements” as instruments by which post-loss benefits under a property insurance policy are assigned or transferred from insureds to persons providing protection, repair, restoration, or replacement services relating to damaged property. The statute specifies that an assignment must:
- Be in writing and executed by both the assignor and assignee;
- Contain a provision permitting the assignor property owner to rescind the agreement without penalty by written notice of rescission: (1) within 14 days after execution of the agreement; (2) at least 30 days after the date work on the property is scheduled to begin if the work has not been “substantially performed;” or (3) if the assignee has not begun the work, and the assignment specifies no start date, then at least 30 days after execution of the agreement;
- Contain a provision requiring the assignee to provide its carrier with a copy of the executed assignment within 3 business days after its execution or the date the work begins, whichever date is earlier;
- Contain a written, itemized, per-unit cost estimate of the services the assignee expects to perform;
- Relate only to services to protect, repair, restore or replace a structure, or to mitigate against further damage;
- Contain a notice in 18-point typeface that, by executing the assignment, the property owner gives up certain rights to insurance proceeds to the assignee, and further notifying the owner of its right to rescind the agreement without penalty pursuant to the statute. The notice must also advise the owner that he or she remains responsible for compliance with the duties set forth in the insurance policy; and
- Contain a provision requiring the assignee contractor to indemnify and hold harmless the assignor property owner from all liability, including damages and attorney’s fees, if the policy prohibits, in whole or in part, the assignment of benefits.
The statute further provides that the assignment may contain neither any penalty or fee for rescission nor any other processing or administrative fee.
The statute also contains a provision regarding emergency services necessary to protect property from further damage, limiting the assignment to $3,000 or 1% of Coverage A under a property insurance policy. In order to fall within this limited exception to the statute's notice and rescission provisions, the assignee must establish that there was “a situation in which a loss to property, if not addressed immediately, will result in additional damage until measures are completed to prevent such damage.”
If an assignee breaches its statutory duties, it bears the burden to prove that the insurer was not prejudiced by the breach. These duties include: (1) the maintenance of records of all services provided; (2) cooperation with the insurer's claim investigation; (3) provision to the insurer of requested records and documents related to the assignee’s services, including permitting the carrier to make copies of any such documents or records; and (4) the delivery of a copy of the executed assignment to the insurer within 3 business days after execution of the agreement.
The statute also provides that the assignee:
- Must provide the assignor with accurate and revised estimates if the scope of changes;
- Must perform the work in accordance with “accepted industry standards;”
- May not seek payment from the assignor of any amount in excess of his or her deductible unless the assignor has chosen to have additional work performed at the assignor’s sole expense;
- Must, as a condition precedent to suit, and, if required by the insurer, submit to examinations under oath and provide recorded statements conducted by the carrier or its representative that are reasonably necessary based on the nature and scope of the work, provided that the examination and/or statement is limited to matters relating to the services, the cost of the services, and the assignment agreement;
- Must also, as a condition precedent to suit on the policy, and if required by the insurer, participate in appraisal or other alternative dispute procedures pursuant to the terms of the policy.
The statute will not modify or eliminate any managed repair arrangement contained in an insurance policy.
The statute further provides that acceptance of an assignment by an assignee waives the assignee’s (or its subcontractors’) claims against a named insured for payments arising from the assignment. These claimants also may not: (1) attempt to collect money from an insured; (2) sue an insured; (3) lien an insured’s property; or (4) report an insured to a credit agency for the failure to make payments arising from the assignment, unless the assignment has been rescinded or the agreement is deemed invalid. The assignee further agrees to indemnify and hold harmless the assignor from all liability, including damages and attorneys’ fees, if the insured’s policy prohibits the assignment of benefits.
In addition, the assignee must provide the named insured, insurer, and the assignor (if someone other than the named insured) with a notice of intent to initiate litigation before filing suit under the policy. The notice must: (1) specify the damages in dispute; (2) state the amount claimed; (3) include a pre-suit settlement demand; (4) include itemized information on equipment, materials, supplies, and the number of labor hours expended, and; (5) provide proof that the work has been performed in accordance with accepted industry standards. The carrier must respond in writing to the notice within 10 business days after receipt by either making a pre-suit settlement offer or requiring the assignee to participate in appraisal or other alternative dispute resolution procedures.
The assignee is entitled to recover its attorney’s fees and costs under Florida Statute 57.105 and this new statute only under certain limited circumstances, and it may be required to pay the insurer’s attorneys’ fees. Specifically, if the judgment obtained after suit is less than 25% of the disputed amount, the insurer is entitled to its reasonable attorneys’ fees. If the judgment is at least 25% but less than 50% of the disputed amount, neither party may recover its fees and costs. Finally, if the judgment is at least 50% of the disputed amount, the assignee is entitled to its reasonable attorneys’ fees and costs.
If the insurer fails to inspect the property or provide authorization for the repairs within 7 calendar days after the first notice of loss, it may waive its entitlement to attorneys’ fees if suit is later filed. The insurer does not waive this entitlement if its failure to comply results from: (1) a state of emergency; (2) factors beyond the insurer’s control that prevented an inspection or authorization for repairs; or (3) the named insured’s failure to permit an inspection of the property after the insurer has requested permission. In that event, the insurer does not waive its right to pursue reasonable attorneys’ fees and costs if it prevails in a suit brought by the assignee.
If an assignee has previously sued the carrier and voluntarily dismissed the action, but later refiles the same suit, the court may order the assignee to pay the insurer’s attorneys’ fees and costs resulting from the initial lawsuit. The court must stay the proceedings in the later-filed lawsuit until the assignee has complied with the court’s order relating to fees and/or costs.
The statute expressly does not apply to assignments granted to a subsequent purchaser of property who has an insurable interest in the property after a loss or a power of attorney that permits an insured’s representative to act on behalf of an insured with respect to the insured’s property insurance. The statute also does not apply to liability coverage under a property insurance policy.
Assuming that the bill is signed by the Governor, it will become effective as to any assignment of benefits executed on or after July 1, 2019. Significantly, the statute also provides that, by January 30, 2022, property insurers must report data on each residential or commercial property claim paid or litigated under an assignment. The specific types of data required to be reported will be determined by the Financial Services Commission. The Commission will presumably analyze whether the statute furthered the desired goal of reducing loss and loss-adjustment expenses, which was the impetus for the legislation.
House Bill 7065 also enacts Section 627.7153, which permits an insurer to offer a policy that restricts, in whole or in part, an insured’s right to execute an assignment of benefits if:
- The insurer also offers insureds the same coverage under a different policy that permits assignments of benefits;
- The restricted policy is available at a lower cost than an unrestricted policy;
- The policy prohibiting all assignments is cheaper than a policy prohibiting partial assignments; and
- Each restricted policy provides notice to the insured in bold-faced type that the policy does not permit unrestricted assignments, and that by selecting that policy, the insured waives his or her right to freely assign or transfer to a third party the post-loss property insurance benefits available under to the policy.
Carriers must notify their insureds, at least annually, of the various coverage options available under the statute, and that notice must be part of and attached to the premium notice. A named insured must reject a fully assignable policy in writing or electronically on a form approved by the Office of Insurance Regulation, and must specifically state that the policy restricts the assignment of benefits in a heading in regulated type size.
Section 627.7153 becomes effective on July 1, 2019, and it applies to policies issued or renewed after that date.
Finally, Florida Statute 627.422, which is an existing statute currently providing that post-loss assignments may or may not be assignable depending on their terms, is amended to provide that any such assignment entitles the insurer to deal with the assignee as the owner or “pledgee” of the policy in accordance with the terms of the assignment until the insurer has received at its home office written notice of termination of the assignment or notice from some other person claiming an interest in the policy that conflicts with the assignment. The statute further provides that a property insurance policy may not prohibit assignments of post-loss benefits unless the policy complies with Florida Statute 627.7153.
In the event that any portion of the foregoing law is deemed invalid, the Legislature has provided that any invalidity should not affect the remaining provisions of the statute, which are severable from any deemed invalid as, for example, unconstitutional.
The foregoing summary of the new AOB law is just that: a summary, and this is not meant to exhaustively detail the finer points of the proposed law. We have attached hereto a copy of the law in its entirety for your edification.
If you have any questions or concerns, please feel free to contact the attorneys at Conroy Simberg, who will be happy to assist you with this and any other matter.